Why the Dow Jones Industrial Average dropped as Trump came to Cincinnati to tout tax cuts

Some Wall Street pros say the stock market is entering a melt-up phase, which could affect your 401(k).
USA TODAY

NTraders and financial professionals work on the floor of the New York Stock Exchange (NYSE) at the closing bell, February 2, 2018 in New York City. The Dow dropped 250 points at the open on Friday morning. The Dow plunged over 660 points on Friday, marking its biggest one day plunge since June 2016 following the Brexit vote.(Photo: Drew Angerer)

"The markets are pausing and maybe winding back off the very strong growth and record highs that have taken place,'' said Shaun Bond, a professor in the finance department at the University of Cincinnati. "What's ironic is some of this (pullback) is because people's outlook for the economy is very optimistic and very strong.''

The Dow Jones industrial average nosedived more than 300 points in early trading Monday before recouping much of its losses by mid-morning then capitulating another 200 points in the early afternoon.

The S&P 500 and Nasdaq followed the same whipsaw pattern Monday, opening down more than 21 points and 65 points, respectively, before heading back toward positive territory, then declining precipitously again by early afternoon.

The decline followed U.S. stock indexes' worst weekly performance in two years on Friday when the Dow fell 665.75 points - its biggest one-day sell-off since June 2016.

Widespread expectations that the Federal Reserve is likely to raise short-term interest rates more aggressively this year to curb inflation is currently acting as a headwind for the stock market, Bond said.

President-elect Donald Trump should reconsider his plan to raise the tax rate on carried interest, the Buckeye Institute says. Shown, Trump leaves the New York Times building following a meeting, Tuesday.(Photo: AP/Mark Lennihan)

But the long-term benefits of the Republican tax cuts passed in December under President Donald Trump are likely to outweigh short-term concerns about rising interest rates. Bond said.